Attracting Investment Facilitated
by Corporate Governance In Mongolia
Attracting investment in Mongolia—at least in non-extractive sectors—
has been challenging, especially since the country’s economic downturn
in 2011. But Mongolian corporations that put good corporate governance
practices in place have attracted attention from investors, sometimes
resulting in fruitful, long-term partnerships.
Khan Bank, a leading lender to smaller businesses and an IFC client since
2004, attributes over $120 million of additional investment between 2011
and 2014 to improved corporate governance. Such investments have
helped the bank improve its services: it now has more than 500 branches
and provides banking services to an estimated 70 percent of the Mongolian
population; its total number of customers grew 15 percent to 2.3 million
and its asset and loan portfolios increased by 24 percent and 7 percent,
respectively, from a year ago. The corporate governance improvements Mongolian firms were
also enabled Khan Bank to sustain a far better performance than its major
eager to become
competitors during challenging times in recent years.
more attractive to
Tenger Financial Group (TFG), another IFC client, reports a similar
experience. TFG and its main subsidiary XacBank acknowledge that better foreign investors,
corporate governance “played a significant role” in obtaining around $400
who more often
million in new investments between 2011 and 2014. The additional funds
enabled XacBank to successfully turn itself from a microfinance institution eyed opportunities
into a large-scale commercial lender. XacBank’s sound performance and
in neighboring
growing reputation helped it obtain funding from eight international
finance institutions including IFC and FMO; in turn, XacBank funds the countries.
growth of thousands of micro, small and medium enterprises.
Better corporate
Both XacBank and Khan Bank employ thousands of Mongolians, providing
governance was one
steady jobs and sustaining the local economy. In Mongolia, better
corporate governance helped a total of five IFC client firms improve way to do that.
performance; three of them managed to access financing of over $400
million, of which $177 million was from IFC.
IMPROVING CORPORATE GOVERNANCE IN MONGOLIA
Mongolian firms were eager to become more attractive to foreign
investors, who more often eyed opportunities in neighboring countries.
Better corporate governance—which brings more discipline and
transparency to corporate management and decision making—was one
way to do that. Few of the top corporations in the country practiced
good corporate governance when IFC launched its Mongolia corporate
governance project, and none met the standards of international best
practices. A big part of the problem was a lack of awareness of corporate
governance and limited opportunities to learn about it.
IFC partnered with local institutions to prepare materials in Mongolian
on corporate governance and conducted a series of training events
led by international experts in the field. The project developed seven
publications, including a corporate governance guide for family
businesses, a board secretary manual, and a corporate governance
handbook with model templates. OECD Principles on Corporate
Governance were translated and widely distributed in the country.
Five IFC clients received in-depth training and subsequently incorporated
more than 25 documents, including a corporate governance code,
Mongolia’s ranking
into their business models to improve their board operational and
committee procedures. All clients reported improvement in the board under the minority
and management’s overall commitment to corporate governance,
investor protection
shareholder meetings and board activities, transparency, risk governance,
and internal controls. category in the World
Broader outreach was achieved by training trainers in local institutions Bank Group’s Doing
who reached a total of 331 firms and trained more than 2,600 people. IFC
Business report
helped eight partner institutions build up their capacity to independently
provide corporate governance services in the future. improved from 24th
In addition to the training, IFC completed several additional activities: in 2009 to 8th in 2016.
(i) working with the Mongolian Financial Regulatory Commission
to develop the nation’s corporate governance code; (ii) developing a
corporate governance scorecard to help companies track and improve
their performance; and (iii) improving legislation and increasing public
awareness of corporate governance.
REALIZING REAL BENEFITS
The benefits of better corporate governance in Mongolia extend
beyond IFC’s client base. Mongolia’s ranking under the minority investor
protection category in the World Bank Group’s Doing Business report
improved from 24th in 2009 to 8th in 2016. Doing Business attributes
this to strengthened investor protections by increasing the disclosure
requirements for related-party transactions. This reflects the corporate
governance project’s work on disclosure regulation and the new
corporate governance code.
Mongolian companies today are much better positioned to improve
their corporate governance, raise their productivity, and attract credible
business and investment partners. Legislation is more supportive,
institutions now have the capacity to provide the necessary training,
and world-class materials on corporate governance are available
in Mongolian. Corporate governance can give Mongolia an edge as
it develops its significant mineral resources and positions itself in
international markets.
To learn more about IFC’s work in corporate governance, visit www.ifc.org/corporategovernance.
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